The recent announcement of a £5m Sustainable Agriculture Loan Scheme by the Welsh Government, delivered through the Development Bank of Wales, offers fixed-rate loans at 3% to farms for investments in renewable energy, energy efficiency, storage, waste management, equipment, processing, and infrastructure. While this pilot is long overdue for a sector undergoing difficult transition, it raises a fundamental question: why should only agricultural businesses benefit from such patient, affordable financing?
The underlying economic problem is not unique to farming. Too many Welsh firms lack the capital, confidence, or incentive to invest in technology, equipment, and systems that would boost productivity. In 2023, GVA per hour worked in Wales was just 84.9% of the UK average, the lowest among the twelve UK nations and English regions. If productivity is the North Star of Welsh economic policy, the machinery of economic development must change, starting with the Development Bank of Wales.
The Problem with Current Lending Rates
The Development Bank of Wales currently charges annual business loan interest rates ranging from 6.25% to 13%. As senior management argues, these rates reflect risk, security, and each applicant's financial position—standard commercial lending. However, the new farm scheme offers a fixed rate of 3%, loans from £25,000 to £1m, repayment terms up to 15 years, and a six-month repayment holiday. This is a completely different proposition. A business borrowing at the bank's average rate of 8.56% over five years faces a very different investment calculation from a farm under this scheme.
If the Welsh Government believes that patient capital with lower interest rates can help farms invest to become more productive, resilient, and sustainable, then the same principle should apply across the wider Welsh economy—as some have proposed for years.
A Productivity Investment Loan as a Flagship Product
The Development Bank of Wales should make productivity-enhancing investment its primary strategic purpose. A Welsh Productivity Investment Loan could support smaller firms with microloans for digital systems, software, energy efficiency, equipment, and process improvements. It could back established SMEs with larger loans for machinery, automation, robotics, storage, production systems, AI adoption, and low-carbon technology. It could fund long-term strategic projects in manufacturing, food and drink, tourism, life sciences, engineering, and advanced services where the investment case is clear.
The key test should be the investment, not the sector. A farm investing in new storage capacity and a food manufacturer investing in refrigeration and automation are both trying to produce more value from the same or fewer inputs. This is where public finance can make a real difference, as commercial lenders are often cautious about long-term productivity investments, especially for smaller firms without strong asset backing.
Measuring Success by Productivity Outcomes
This should not become cheap debt for weak firms with no future. Wales does not need a subsidised survival fund for businesses unwilling to change. Success should be measured not by how much money is lent or how many jobs are claimed, but by productivity outcomes: turnover per employee, margin improvement, wage growth, energy efficiency, export growth, capacity increases, and private investment leveraged.
The farm loan scheme should be seen as a pilot for the rest of the Welsh economy. The new Welsh Government has promised to review the activities of the Development Bank of Wales. What better time to shift its strategic focus from general business finance to a national productivity mission? If Wales is serious about closing the gap with the rest of the UK, the question every publicly backed business loan should ask is simple: will this make a Welsh firm more productive? If yes, give those firms the affordable patient capital to make it happen.
